This chapter explores the contribution of law and economics to conflict of laws, including choice of law, personal jurisdiction, and judgment recognition and enforcement. Consistent with developments in the literature, the majority of discussion focuses on choice of law, or how best to allocate sovereign authority over governing law when private disputes involve people or events that span multiple states or nations. The tension between private and state interests and the contributions of jurisdictional competition are considered, as is state incentives to cooperate, harmonize, and/or reciprocate in each of the substantive areas covered. Both federalism and international relations issues are briefly discussed.
This article provides a primer of the fiscal frameworks set forth in the US Constitution and the fifty state constitutions. Recognizing that neither the United States nor any constituent state has a free-standing fiscal constitution, the article works through the labyrinth of fiscal provisions that are embedded in the constitutions and constitutional law. Because what the US Constitution “says” about the practice of fiscal federalism is largely about what the federal courts (past and present) have decided it should be (ostensibly based on what the framers meant by federalism), the article begins with a review of The Federalist on federal and state fiscal powers. It then lays out the core public finance provisions in the federal Constitution.
Kim Christian Priemel
The debate on how to rein in transnational corporate power has greatly intensified over the past decades. Following a series of scandals, conflicts, and crises, civil rights activists, lawyers, and heterodox economists have been promoting efforts to hold private business accountable for the social, economic, ecological, and political costs of its actions. National legal cultures, however, differ widely on that issue, in particular with an eye to corporate personhood and extraterritoriality. After centuries of not prosecuting corporations on grounds of their lack of mens rea, the pattern changed in the twentieth century as developments in different legal spheres intertwined. When competition law coalesced with tightened national corruption standards as well as the emergence of international war crimes prosecution, a path toward international corporate liability opened up. By now a patchwork set of approaches has emerged in which soft and hard law, statutory and treaty law, and national and international regulation converge on corporate liability.
John M. de Figueiredo and Edward H. Stiglitz
This chapter examines to what extent agency rulemaking is democratic. It identifies four major theoretical approaches to administrative rulemaking: the unitary executive theory, emphasizing presidential control and accountability; the structure and process school of thought, emphasizing congressional control; the insulation perspective, holding that the public interest and democratic values are often best advanced by limiting political control over administrative agencies; and the deliberative perspective, arguing that rulemaking is the “best hope” for achieving a vision of deliberative democracy. Each theory is evaluated in light of two normative benchmarks: a “democratic” benchmark based on voter preferences, and a “republican” benchmark based on the preferences of elected representatives. It then evaluates how the empirical evidence lines up in light of these two approaches. The chapter concludes with a discussion of avenues for future research.
Constitutions have been a central topic for the economic analysis of law since Buchanan and Tullock (1961) introduced the discipline of constitutional political economy. From the outset economic analysis has been deployed for both positive and normative ends. Their project was normative, but economic analysis provides tools to critique real world constitutions and to analyze their attributes. Optimal design of constitutions in theory is rarely matched in practice, but this is no hindrance to understanding the form, duration, and impact of actual constitutions. This chapter reviews the ends of constitutional design. It offers a positive theory of constitutional bargaining which can be used to inform normative design questions. Whether particular institutions ought to be included in a constitution depends on the extent to which such texts make a difference, which is an empirical question subject to some scrutiny. A review of the empirical literature on constitutional design concludes.
Geoffrey Parsons Miller
The economic analysis of ancient legal systems is fundamentally similar to the economic analysis of modern law. The researcher observes a data set of legal materials and seeks to explain its features based on a model of human action. If the analysis is successful, it could enhance the understanding of phenomena that are poorly explained by other approaches. Certain features of ancient legal materials, however, constrain economic analysis and require modifications to the methodology. Three differences are most salient: the sources of data available to the researcher; the assumptions that the researcher brings to bear in analyzing the data; and the techniques of validation available to confirm or disconfirm theoretical hypotheses. This chapter discusses how economic analysis is conducted subject to these constraints as well as applications of economic analysis of ancient legal systems.
Robert G. Bone
This chapter examines the law-and-economics approach to civil procedure. It argues that law and economics offers tools and insights that are relevant, indeed critical, to designing an optimal procedural system no matter what normative metric is applied. Section 8.2 begins the discussion by defining more precisely what is included in the category “civil procedure”. Section 8.3 then describes the law-and-economics approach in more detail and discusses some of its strengths and limitations. Section 8.4 illustrates the usefulness of this approach by applying it to three specific procedures: court-annexed mediation, pleading, and discovery. Section 8.5 concludes by summarizing the key contributions the law-and-economics approach has made to civil procedure analysis in general and outlining directions for future work.
This chapter discusses the economic approach to crime. By applying the tools of economic analysis and econometric methodology, it serves as a unified approach for understanding illegal behaviour as part of human behaviour in general. It offers new insights about the relative efficiency and desirability of means of crime control and components of the law enforcement system. The economic approach, and the “market model” linking it to the general methodology used by economists to study and interpret the general economy, remains a work in progress, because the data are not available to the degree they are collected and reported in other areas of economic inquiry. It is still too early to assess the degree to which the various econometric studies have produced accurate estimates of critical behavioral relationships underlying variations and conflicting trends of crime. Progress depends on better data and more complete implementations of the comprehensive model of crime.
Keith N. Hylton
This chapter reviews the economics of criminal procedure, proceeding through four topics in the literature. First, it reviews the implications of substantive criminal law theories for criminal procedure. The second part discusses the error cost model of criminal procedure, which is the dominant framework and posits that criminal procedure rules are designed to minimize the sum of error and administrative costs. The third part reviews the public choice model of criminal procedure. Under this model, criminal procedure rules are designed largely to regulate rent-seeking activity. The last part of this chapter discusses some of the empirical work on procedure that bears directly on deterrence and welfare effects.
Robert P. Inman and Daniel L. Rubinfield
This chapter provides an overview of the political economy of federalism. The core of the chapter focuses on the classic Tiebout framework and its support for a decentralized federal system. However, it goes beyond the Tiebout world in suggesting a framework that is expanded to take into account bargaining among governmental units. The chapter also describes political models of legislative and executive branch decision-making that suggest the potential benefits and costs associated with centralized government. Ultimately, the choice of an “optimal” level of decentralization depends on the relative importance one places upon economic efficiency and the potentially competing values of political participation, economic fairness, and personal rights and liberties.
Andrew Guzman and Alan O'Neil Sykes
This chapter begins with a discussion of the architecture of international law. The economic analysis of international law, like virtually all writing on international law, tends to focus on the state as the key unit. As states pursue their individual goals they will inevitably create externalities that affect other states, creating a gap between what is optimal for an individual state and what is globally efficient. The business of international cooperation and international law can be conceived of as an attempt to close that gap. Central to the international legal system are formally binding agreements among states. States enter into what amounts to contracts in an effort to address externalities created by their actions. The remainder of the chapter deals with economic issues in international law (trade, environment, human rights and humanitarian law, use of force, and investment).
Joel P. Trachtman
The essence of an international organization is the delegation of decision-making authority from individual states to the organization, representing the collectivity of member states. In simple terms, international organizations are to international law as firms are to contracts: states form international organizations in order to reduce the transaction costs associated with cooperation, as compared to the entry into international legal rules without organizations. The core questions are the same: why are these institutions formed, what powers do they have, and how are they exercised? This chapter analyzes the reasons for the creation of international organizations, as well as the reasons why particular structures of international organizations are utilized. It assesses the relationship among assignment of subject matter authority, legislative capacity, adjudicative capacity, enforcement capacity, and membership. It examines how these features correspond to particular contexts of international cooperation.
In order to make sense of the field, this survey identifies and discusses five genres of scholarship that use economics to understand legal history: 1) Works that analyze law as the dependent variable try to explain why societies have the laws they do and why laws change over time. 2) Scholarship that views law as an independent variable looks at the effect of law and legal change on human behavior. 3) In bidirectional histories, law and society interact in dynamic ways over time. Laws change society, but change in society in turn leads to pressure to change the law, which starts the cycle over again. 4) Studies of private ordering investigate the ability of groups to develop norms and practices partly or wholly independently of the state. 5) Works on litigation and contracts in former times analyze these phenomena using modern tools and theories.
This chapter examines the basic model of the law and economics of litigation, focusing on private civil litigation, in particular the litigation value of a lawsuit and the incentives for filing a suit. It begins with the one-stage single plaintiff/single defendant investment model of litigation, and describes the conditions for filing, default, settlement, and litigation. It examines the effects of litigation cost- and fee-shifting and the effects of percentage contingency fee arrangements within the standard one-stage model. The model is modified to take into account sequencing and option value. It is shown how litigation with multiple stages and the revelation of information alter the investment value of litigation, and the effects of litigation reform proposals such as fee-shifting. The chapter discusses third party or external effects and how these complications affect the outcome of litigation, the viability of a lawsuit, and the predictions of the standard model of litigation.
Daniel N. Shaviro
This chapter considers the question of how tax law can be designed with an eye to maximizing economic efficiency. From the standpoint of efficiency, no lump-sum tax is better than any other—by definition all succeed equally in avoiding the creation of deadweight loss. This leads directly to two main questions. First, why are lump-sum taxes, or instruments that come as close to them as possible, so absent, not just in actual practice but even in theoretical debate about tax policy? The answer turns on the importance of distributional issues. Second, how do considerations of efficiency operate once we have accepted, for distributional reasons, the need for tax instruments that have the unfortunate side effect of discouraging productive activity?
Paul B. Stephan
This chapter examines the issue of international law enforcement. The absence of an international state means that international law relies principally on complex enforcement mechanisms, as opposed to a single powerful law enforcer. The focus is thus on the design and operation of enforcement mechanisms under conditions of decentralized power and authority. The chapter first considers the distinction between formal and self-enforcement of international law. It reviews debates over the use of both permanent and ad hoc institutional enforcers and the array of enforcement mechanisms that these institutions may use. It then examines informal enforcement and explores the question of whether formal and informal mechanisms are complements or substitutes. Next, it looks at the trade-offs between state and private enforcement of international law. Finally, it considers questions of optimal international law enforcement, including supracompensatory remedies.
Public service is a calling distinct from academic education and research or business pursuits. For the career federal economist, the imperative to serve the public interest in a complex political setting introduces the potential for ethical dilemmas unique to government. Although the rewards of public service are considerable, the economist recognizes the possible tension between political goals and interests and the economist’s concern for professional independence and objectivity. Such friction with politics may on occasion result in suppression or alteration of results or analysis, direction to produce support for decisions already taken, and disagreement over policy decisions. To deal thoughtfully with these challenges, federal economists should be better prepared to think explicitly about ethics, have appeal to an external ethical standard, and advocate for the creation of legitimate internal government dialogue on ethics.
James R. Eads
Citing the evolving limits on the power of state and local government to tax, this article catalogues the major federal preemptions (more than half of which have been enacted since 1969) of state and local taxing powers, starting with those that relate to federal government instrumentalities and the treatment of federal employees (including service members) to that of interstate telecommunications and employment matters. It concludes by arguing that though a case can be made for selective federal preemptions of the state tax base there is an equally important concern that the federal government will overreach. By drawing on the work of the US Advisory Commission on Intergovernmental Relations, the article then offers a set of guidelines for avoiding what Alexander Hamilton would have likely regarded as a “usurpation of power not granted by the constitution.”
Timothy J. Conlan and Paul L. Posner
This article details the development of the US federal system over the past two and a half centuries. It not only establishes the proposition that if one is to understand the history of this country then one must understand its federalism platform, but also that that platform sets the initial conditions for determining the future options for US public finance policy and administration. To develop this theme, the article takes us through a series of stages—from that of a “dual federalism” that lasted until the 1860s whereby the federal and state governments had little overlap in functions and responsibilities to a post-Civil War era centralizing impulse that strengthened what had been a very weak antebellum national government. The early twentieth century saw the establishment of many of the institutions that are now part of today's intergovernmental system. What ensued was “cooperative federalism,” a model of governance whereby the federal government and the states shared responsibilities in a collaborative manner.
Anthony A. Braga
Thousands of Americans are killed by gunfire each year, and hundreds of thousands more are injured or threatened with guns in robberies and assaults. The burden of gun violence in urban areas is high and concentrated among a small number of criminally active people and occurs in a small number of places within cities. This chapter reviews varied criminal justice interventions to deny criminal access to firearms and reduce criminal possession, carrying, and use of firearms. The research suggests that criminals acquire guns from a variety of sources including illegal diversions from legitimate firearms commerce. While more evaluation evidence is needed, supply-side interventions are promising in reducing criminal access to firearms. The evaluation evidence on the effects of sentencing enhancements on gun crime is mixed. A growing body of research evidence shows that hot spots policing programs and focused deterrence strategies to control repeat gun offenders can reduce gun violence.